High Mutual Fund Fees Discussed

A New York Times article from late last month discusses the high fees charged by many mutual funds.

“In a global economy where competition and Amazonian price destruction have forced companies to cater to cost-wary customers, the mutual fund industry is a rare outlier. Fees on most actively managed mutual funds, which house the retirement savings and other assets of millions of Americans, have barely budged.”

The article highlights the fund family of billionaire Ronald Baron, pointing out that the fees charged were “54 percent higher than last year’s industry average—and vastly higher than what a comparable exchange-traded fund would charge.” While many mutual funds are similarly inflexible on fees, the article points out that some (it cites Capital Group and Fidelity as two examples), have “gotten the message” and reduced fees.

According to industry experts, the article says, many active mutual funds remain inflexible on fees because:

  • Power and presence in the market: Approximately $10 trillion in investor money remains in actively managed funds, which generates about $100 billion in fee income and “suggests they don’t need to cut fees to retain assets.” The article also points out that, because of varied structures and share classes, it is exceedingly difficult for investors to discern what fees they are paying.
  • Lack of oversight: While each mutual fund is overseen by a board of trustees, the article calls into question whether such boards are effective advocates for investors and underscores potential conflicts of interest.